In a recent piece on drawdown, I looked at one of the more obvious gaps in the pension experience: after spending decades helping people save and invest for retirement, the industry has paid comparatively little attention to what happens when they actually come to use that money.
But drawdown is really one example of a wider issue. Pensions should be one of the biggest financial assets any of us will build up, yet finding them, moving them and understanding what we can do with them can still feel strangely detached from the way we manage most other parts of our financial lives.
It’s an oddity that’s becoming more important as the shape of retirement saving changes. Auto-enrolment means more people are saving into workplace pensions, while changing jobs leaves many of us accumulating several different pots over the course of our careers. The result is a growing amount of pension wealth spread across different providers, often with relatively little sense of what we have, where it is or what we should be doing with it.
Pensions dashboards should make some of that easier. We’ve written elsewhere about what their arrival could mean, so I won’t labour the point here, but making pensions easier to find and see in one place should give many more people a clearer view of what they’ve actually built up.
For some, that visibility will probably prompt questions they haven’t really had to confront before. Am I saving enough? Should I consolidate? How does this sit alongside my other savings and investments? What sort of retirement might it actually fund?
Dashboards won’t answer those questions, but they will bring them much closer to the surface. And for firms that already help people manage other parts of their financial lives, that creates an interesting opportunity to help people make sense of what they see and decide what to do next.
Bringing pensions into the wider relationship
Banks, fintechs, investment platforms and wealth managers have spent years making savings and investments easier to access and manage digitally.
Pensions have typically sat further outside that experience – partly because they’re long term and interacted with far less frequently (think ‘set and forget’), but also because the infrastructure behind them has made it harder to bring them into the same kind of digital journey.
I think that separation will start to look more conspicuous – and less forgivable – once people can see those pension assets more easily.
Someone who already uses an app to manage their current account, build savings pots and invest for the future might reasonably expect their pension to sit within the same financial picture. For the firm providing that experience, adding pensions can make the relationship more complete, too – particularly as customers get older and retirement savings account for an increasingly important part of their wealth.
There’s also a fairly obvious consolidation opportunity. People moving through several employers can end up with a collection of relatively small workplace pensions, and bringing those together into a SIPP can make them easier to keep track of while giving the customer more control over how the money is invested.
Historically, serving those customers hasn’t always been particularly attractive. Pensions come with specialist administration and regulation, and manual processes can make smaller balances expensive to support. As more of that work becomes digital and automated, the economics begin to change: our work with firms considering new SIPP propositions has shown how lower operational costs can make it possible to serve smaller pension pots much more efficiently.
So, this isn’t only a question of giving existing pension customers a nicer interface. Better infrastructure makes it possible for a wider range of firms to think differently about whether pensions should form part of their proposition in the first place.
What that means for the SIPP
While SIPPs themselves have been around for decades, the experience around them doesn’t need to be outdated.
Accounts can now be opened digitally, contributions and tax relief can be automated and transfers can be initiated and tracked online. Pension journeys can sit alongside somebody’s other investments rather than sending them into a completely separate experience whenever they want to do something with their pension.
And, as I explored in the drawdown piece, that shouldn’t stop when somebody reaches retirement. Accumulation and drawdown are parts of the same financial journey, even if the industry has historically treated them rather differently.
The infrastructure underneath has moved on, too. Modern pension administration can take much more of the manual work out of running a SIPP, making it easier for firms to build pensions into the digital experiences they already offer rather than having to recreate all of that specialist capability themselves.
At the risk of an obvious Seccl plug (it is our blog, after all), we’re seeing this happen at some scale. We now support around 201,000 SIPP accounts and, in August alone, processed around 2.1 million pension transactions and 31,000 pension transfers.
In other words, digital pensions aren’t some future ambition. Modern firms are already launching and scaling them today – and as dashboards bring pension wealth into view for millions more people, I’d expect plenty more to start looking seriously at the opportunity.
For firms that already help people save and invest, the question is increasingly whether pensions should remain the siloed territory of other providers – or become a more natural part of the financial relationship they already have. My money’s on the latter…
